Appendix E

Performance Contracting: Performance contracting ensures that contract dollars spent by the Commonwealth on the purchase of commodities and services are, in fact, producing the desired results and meeting the requirements of the contract. In general, payment is contingent upon results rather than effort. RFRs should state clearly the services expected, define performance standards and measurable outcomes, identify performance evaluation methods, and include positive or negative performance incentives, if appropriate.

Use of Contractor-Owned Materials During Performance: Sometimes the products are owned or copyrighted by the contractor and are merely provided to fulfill contract requirements. These products should be identified as contractor material, performance requirements, or benefits. A common example of a “benefit” is computer software that is owned and copyrighted by a contractor but is adapted or redesigned specifically for a Department. The Department would contract for this redesign and for a license to use the software. The contract also might include provisions for additional design plans, upgrades, and maintenance. Also, Departments could purchase training manuals and have a usage license. However, the contractor would maintain ownership and copyright of the content and design of the manuals. The contractor has more of an interest in ownership and copyright of the design and content of the manuals, since these tools may be adapted for a variety of different clients.

Departments should weigh carefully the risk of relinquishing any rights to products that have been created or developed utilizing Commonwealth funds, since the Commonwealth may be entitled to recoup a share of any profits and should consult appropriate legal staff when addressing these issues.

Brand Name or Equivalent: Substantially equal specifications should be used unless the SSST determines that:

No specification for a common or general use item is available.

The nature of the product or the nature of the Department’s requirements makes use of a brand name or equal specification suitable for the procurement.

Use of a brand name or equal specification is in the Department’s or Commonwealth’s best interests.

Use of brand name-only specifications or specifications that restrict a commodity to a pre-determined brand or design specifications are the most restrictive forms of competitive procurement and should be used only if essential. When using brand names as part of the specification, procuring Departments should use “or equal,” to substantiate that equivalent products also will be considered. Include additional specifications, i.e., particular design, performance, and other characteristics of the brand name to ensure that the product identified is the product required.

Performance and Payment Timeframes that Continue Beyond the Duration of the Contract: Departments may consider including the language from the RFR - Other Specifications pertaining to term leases, rentals, maintenance, or other agreements for services entered into during the duration of the contract, if the performance and payment time frames extend beyond the duration of the contract. The RFR may state that the terms may remain in effect for performance and payment purposes (limited to a clearly defined timeframe, e.g. “….up to 24 months beyond the final end date of the contract”). However, it also must state that no new leases, rentals, maintenance, or other agreements for services will be executed after the contract has expired. This also applies to “project” services, such as a consultant who is hired for a two-year project in the final year of the contract. Also, any contract termination or suspension will not automatically terminate any leases, rentals, maintenance, or other agreements for services already in place unless the Department also terminates said leases, rentals, maintenance, or other agreements for service, which were executed pursuant to the main contract.

Changes to Performance and Contract Specifications that Require a Formal Contract Amendment: The RFR must specify the types of amendments (formal and administrative) that may occur. Formal amendments require a newly executed Standard Contract Form and are subject to recordkeeping requirements. Administrative changes do not require a formal amendment; however, they must be documented in the procurement file in COMMBUYS. The requirements for executing amendments, including limitations on amendments, must be stated clearly in the RFR. Certain changes, if delineated clearly in the RFR, may be considered administrative changes and will not require a formal amendment. Such changes may include, but are not limited to, certain programmatic changes (which are not so significant that the services no longer reflect those originally procured), clerical changes (but not a change in contractor identity), and budget variations that do not result in an increase to the maximum obligation. The RFR should state the degree to which shifting line items within a budget may be considered administrative. Please note that a formal amendment is required for increases to the maximum obligation even though one of the RFR’s required specifications states that expansion funding may be incorporated into the contract.

In addition to delineating the performance specifications, a Department may use this section of the RFR to require Bidders to present:

A profile of their firm’s operations, qualifications, and the organization’s capabilities. Departments may request samples of products or copies of reports to verify statements regarding capabilities.

Certification that the Bidder is not debarred.

A listing of any current or past litigation that may be relevant to the commodities or services provided by the Bidder.

A detailed description of the Bidder’s resources and experience relevant to the RFR performance requirements, including specific expertise in serving specific populations and/or verification that the Bidder is authorized to sell or distribute specific commodities or services.

A statement about the historical development of the Bidder’s organization.

An organizational chart.

A statement on the experience of Bidder’s staff and the total number of employees (distinguishing between administrative staff, management, principal partners or officers, field, technical, and customer support).

Copies of professional licenses.

Compliance with environmental regulations and/or any other environmental practices that may benefit the Commonwealth.

The location of the offices from which the work will be managed and the number of staff employed at each office.

The number of years the Bidder has been in business and/or the number of years the Bidder has been in the business identified in the RFR (which may be separate and distinctly different from their main business line).

Key personnel of the business and key personnel assigned to meet the Commonwealth’s needs under the contract. (A resume or statement of qualifications must be attached to all consultant contracts pursuant to M.G.L. c. 29, s. 29A.) Departments should review carefully resumes of key personnel to ensure that the skills of the individuals meet those required in the RFR. Departments also should ensure that any changes in key personnel during the contract term require the Department’s pre-approval.

Note: In the development of the list of required documentation, Departments should be mindful of the time and expenses that may be required of the Bidders to respond to the RFR. Only documentation that the Department plans to use in the evaluation process should be required for submission by the Bidders.

Key Personnel: The RFR may require Bidders to provide details on the key personnel associated with the proposed contract work. In addition to naming a contract manager, the Bidder also might be asked for an organizational chart and resumes of the key personnel. This information allows Departments to see the qualities and experience of all key staff, as well as their place in the vendor’s organization.

The contract/project manager is responsible for oversight and management of contract performance and will act as the contact person for receipt of notice and other communications between the parties. The RFR may state that the contract or project manager or any of the agreed upon key personnel may not be changed without prior written notice to the Department or that an agreement must be executed between the contractor and the Department prior to the change. The RFR also may specify that the contract manager be responsible for timely written responses, such as within five business days, for all information requests from the SSSL and attendance at meetings required by the SSSL.

Identification of Subcontractors: A Department should decide whether contractors will be authorized to use subcontractors to complete contract performance and, if so, include this provision in the RFR. Subcontracting is a good opportunity to use the full list of SDO-certified firms that are listed on the Supplier Diversity Office webpage of OSD. Large procurements require the submission of an SDP Plan. For small procurements, Departments may require an SDP Plan for subcontracting relationships. The Commonwealth may require a Bidder to provide a copy of any subcontract and any additional supporting documentation, verifying that the subcontractor is in good standing, e.g., has complied with tax requirements and has not been debarred. Prior approval of the Department is required for any subcontracted service of the agreement. The Commonwealth reserves the right to reject any subcontractor if it is in Commonwealth’s best interest to do so.

All subcontracts should be in writing and contain provisions that are functionally identical to, consistent with, and subject to the provisions of a contract, including reporting and compliance requirements. Unless otherwise provided by law, the Commonwealth is not bound by any provisions contained in any subcontract. Contractors are responsible for the satisfactory performance and adequate oversight of their subcontractors.

Financial Statements: An RFR may require financial statements from Bidders to evaluate their financial stability. Bidders may be required to demonstrate sound financial condition or that appropriate corrective action is being taken to resolve identified financial problems. Bidders also may be required to disclose details of any criminal investigation, indictment, debarment, or other litigation against the firm that might adversely affect its ability to complete its contract performance. In addition to information provided by the Bidder, there are a variety of financial reporting services that may be used by Departments when evaluating the financial strength of a Bidder. Departments may require the independent reports of such services as part of the response.

Benchmarking: Departments may consider informing the Bidders of its intent to use research pertaining to the RFR Key Performance Indicators (KPIs); which may include on-time delivery, customer satisfaction, or prices paid by other purchasers of the commodity or service to establish benchmarks from which to negotiate.

Departments should consider and analyze the prices paid by other Departments, other states, and the federal government (General Services Administration [GSA] contracts) for the same or similar commodity or service to determine the reasonableness of prices offered by the prospective Bidder. Departments may wish to state they will use benchmarking throughout the contract’s duration to keep prices in line with or lower than those paid by other purchasers.

Risk of Loss, Performance Bonds, and Insurance: Pursuant to M.G.L. c. 29, s. 30, the Commonwealth is self-insured. Therefore, contractors are required to bear the risk of loss for any deliverables, data, or their own materials. The risk of loss may not shift to a Department until possession, ownership, and full legal title of the items are transferred to and accepted by a Department. Contract prices usually reflect the contractor’s expenses for providing adequate insurance to cover this risk of loss. Departments should consider whether the procurement warrants a bond or insurance.

Departments may require Bidders to submit performance bonds that usually are based upon a percentage of the contract price to be collected by a Department in the event the contractor breaches or defaults. Performance bonds are required for certain types of procurements, such as construction and other high-risk situations. Performance bonds should be used sparingly and only in high risk situations, since this requirement usually increases the contract price to the Commonwealth and will limit the number of vendors competing for the work.

A Certificate of Liability Insurance (professional or personal injury) also may be required to show evidence of insurance coverage for professional malpractice and/or personal injury that result in connection with the performance of a contract, naming the Commonwealth as an insured party. Further, any contractors that exercise independent judgment or decision making (doctors, attorneys, arbitrators) should carry professional malpractice or personal injury insurance. Independent decision making, even if daily activities are performed on Commonwealth premises and with Department involvement, will take these individuals outside the protections of the Commonwealth under M.G.L. c. 258.

Regardless of their named status in a contract, independent decision making implies independent contractor status and these individuals must be covered by valid insurance policies during the period of the contract. Other

positions, such as temporary help, should be covered by their employers. When contracting with individuals who also happen to work for a corporation, partnership, or other entity, Departments should ensure that these individuals’ contract activities also are covered under the entity’s policy. In most instances, contract activities will be outside of the scope of standard insurance policies, therefore, these individuals must obtain separate policies.

Tax Compliance Certification: Although tax compliance is certified when the Bidder executes the Standard Contract Form and Instructions, the SSST also may require the Bidder to demonstrate compliance with Commonwealth’s tax laws pursuant to M.G.L. c. 62C, ss. 49A, 51 and 52 and M.G.L. c. 181, s 16. The SSST may allow the Bidder to do this with a self-certification or may require a Certificate of Good Standing that has been issued by the Massachusetts Department of Revenue (DOR) within the past year. See www.mass.gov/dor for more information.

Bidders are encouraged to apply for a Certificate of Good Standing, even if the SSST has not required it, either online or by faxing a request to DOR at 617-887-6262. DOR will notify the requestor if there are any remaining liabilities or tax requirements. Certificates will be issued only if the organization is in full compliance. Since all applications require extensive research, the Bidder should allow sufficient time to process.

Compensation Structure

Common Compensation Structures that May Be Either Rate or Maximum Obligation:

Project-Based Compensation:Project-based compensation is used when contract performance cannot be divided neatly into severable units. The payment may be a flat rate-, a deliverable-, or milestone-based rate structure, or an all-inclusive amount (all related costs, overhead, administrative costs, time, materials, etc.). The Bidder provides an actual or estimated cost for the completed contract performance based on the RFR specifications (which should be very comprehensive). Payment may be based on a schedule of predetermined events or deliverables, or upon completion and acceptance by the Department of the entire project. Contractors who underestimate their costs may not request additional compensation.

Unit-Based Compensation: A unit structure pertains to rates that are set by the unit (per item, hour, day, week, or service). Unit-based compensation is valuable when a performance-based compensation structure is not feasible. Units are customarily independent components of a contract and the number may change depending on the Department’s needs. A Department pays only for the units requested and delivered.

Contingency Fee or Revenue Generating Structure: Contingency fee contracts allow contractors to be paid a percentage fee from revenues collected on behalf of the Commonwealth. These contracts must be legislatively authorized and procured under 801 CMR 21.00 (with an approval of the RFR and accounting mechanisms by the CTR; see 815 CMR 8.00). They are not procurement exceptions.